Citi: Haddad has credit for better than expected results – 12/07/2023 – Market

Citi Brasil’s chief economist, Leonardo Porto, stated this Thursday (7) that better-than-expected economic data in 2023 gives credibility to minister Fernando Haddad’s (Finance) economic team and opens up space for a terminal interest rate higher than expected by the majority of the market.

At the beginning of the year, the forecast was that Brazil’s GDP (gross domestic product) would grow by less than 1%. Now, an increase of 2.84% is expected, according to the Focus bulletin. Citi predicts an even higher growth rate of 3.1%.

“GDP, even in slowdown, came in better than expected […] Minister Haddad gained, in part, credit for having delivered better results than imagined”, said Porto, this Thursday (7) in a meeting with journalists.

In the third quarter of this year, GDP rose 0.1%, while economists expected a contraction of 0.3%. According to Porto, Brazil benefited from a more favorable global macroeconomic scenario than expected, even with the rise in interest rates in developed countries, and from a successful monetary policy, which allowed the central bank to start the cycle of interest rate cuts before international peers.

After the release of the GDP, Haddad demanded the BC for interest cuts. “We had a positive, but weak GDP. With the cut in interest rates, we expect GDP to grow by more than 3% [em 2023] and growth in the range of 2.5% next year. But the BC needs to do its job”, said the minister

For 2024 to 2027, Citi projects GDP growth of 1.5% each year. Regarding the Selic, Citi projects that it will fall from the current 12.25% per year to 10% next year and that it will remain at that level until 2027. The Focus survey projects the basic interest rate at 9.25% in the next year and 8.50% in 2025 and 2026.

“The economy is doing well, it is performing even with the high interest rate. The intentions, metrics and objectives that the government has from the point of view of development, social measures, projects for growth [econômico]unemployment, are positive and take a lot of pressure off the BC for a lower interest rate”, said Porto.

Another point that relieves the monetary authority regarding interest rates is the signaling of maintenance of the fiscal target, so as not to discredit the framework and trigger fiscal adjustment devices. “It doesn’t seem appropriate to change the goal before in the middle of the fight, it doesn’t make sense to throw in the towel before fighting with all the possibilities. It’s better not to achieve it, than to change the goal and achieve it”, said Porto.

Despite the discussion around the framework’s goals that increased the perception of risk regarding the Brazilian fiscal scenario, the economist still does not see practical consequences.

“This whole issue of changing targets, not changing targets, I think it has increased uncertainty, but it has not had a relevant impact on asset prices. The impact of this increase in uncertainty on asset prices has been very limited so far,” said Porto.